Shares of EHang Holdings (EH 7.61%) fell 30.2% in February, according to data provided by S&P Global Market Intelligence, after a short-seller issued an unfavorable report about the Chinese autonomous flying taxi start-up.
The drop was much more dramatic than that 30% figure would suggest, as EHang shares had been up 80% for the month before the report was issued.
EHang was among the biggest stock market winners in the first six weeks of 2021, with the stock up more than 450% for the year as of Feb. 15. That changed the next day when Wolfpack Research issued a report calling the company "an elaborate stock promotion."
The company is developing an autonomous flying air taxi, but Wolfpack in its report claims that most of EHang's sales are to an entity called Shanghai Kunxiang Intelligent Technology that Wolfpack says appears "to be more interested in helping inflate the value of its investment" than in buying products.
EHang fired back a day later, saying it "strongly believes that the report contains numerous errors, unsubstantiated statements, and misinterpretation of information." The company also provided data suggesting Shanghai Kunxiang isn't propping up revenue, and referenced a YouTube video that it says shows a Kunxiang trial flight over Turpan, China.
These short battles help foster an interesting debate, but it is hard for a retail investor to know exactly what is going on and who is correct without hopping on a flight to China and inspecting the EHang manufacturing facilities. That's not likely to happen, so investors need to focus on what we do know.
EHang even after February's fall is currently valued at $2.7 billion. That's an impressive valuation for a company with little revenue. If Wolfpack is correct, there's a lot of potential downside from here. And even if Wolfpack is incorrect, I'd argue a lot of the potential upside is already priced in.
EHang shares are less expensive than they once were, but that doesn't mean they are a bargain. Investors should be very cautious if they're considering buying in following the declines.